Shifting mental healthcare patients away from Life Esidimeni – a process that led to more than 100 deaths – ultimately helped to uncover a scheme to bypass financial controls.
The Gauteng provincial government has for years been bypassing its own financial controls intended to prevent fraud and corruption, it has told a court, as it distributes R2-billion a year to thousands of nonprofit organisations.
And the provincial treasury has previously signed off on the use of “conduits”, arrangements that use the bank account of one organisation to pay another. The conduit arrangements obscure the ultimate beneficiaries of government payments for everyone except the provincial officials directly involved in the transactions. There is no indication that these irregularities were flagged, reported or investigated.
Instead, it took Johannesburg High Court judge Brian Spilg to call in the national treasury to look at payments worth tens of millions of rands, which closely resemble money laundering.
Spilg is hearing a complex set of civil claims between the Gauteng department of social development and A Re Ageng Social Services, one of the 2 600 nonprofit organisations it funds.
In the coming week A Re Ageng is to argue that the department must be forced to pay it just under R1-million the organisation says it has wrongly withheld — money that was supposed to pay for salaries and petrol and electricity in the operation of two shelters for women and children, a support programme for victims of crime and a diversion project that seeks to keep petty offenders out of the prison system.
The department, the NGO says in papers, has “pursued a vendetta” against it as it “attempts to place the blame for its own mismanagement of taxpayer money” on to A Re Ageng.
The department, in turn, has said that A Re Ageng is at least partly to blame for — and was possibly complicit in — the theft of R5-million in provincial funds from its bank account. The money was apparently used to buy 40 000 litres of diesel that were then spirited away by 12 unmarked tankers. The R5-million is a portion of a total of at least R42-million that was distributed through these conduit arrangements.
Exactly who is responsible for the disappearance of the R5-million, which was for drug and alcohol rehabilitation, is the subject of a fierce dispute. But in the process it has emerged that the Gauteng government has for years used the bank accounts of long-established NGOs to channel money to new NGOs not yet properly registered in its system.
The R5-million that went missing was part of a R10-million payment from the provincial government to A Re Ageng that was supposed to go to a nonprofit rehabilitation centre operated by the Life Esidimeni group.
Life Esidimeni had been due to use the money for a substance abuse programme operated out of a former mental health facility, which had been shuttered when the provincial department of health moved patients to community-based organisations in a process that resulted more than 100 deaths.
A Re Ageng duly paid over one tranche of the total, but later refused to transfer more money after, it says, it grew suspicious that it was being made party to money laundering.
The provincial social development department struck a deal to fund the new centre in June 2016, documents now before the high court show, which required it to pay it R23-million in four days. That did not leave enough time to register the new centre with the Gauteng department of finance, so the social development department decided to use A Re Ageng as a conduit.
“It should be noted that this conduit practice has been utilised before by the department in the previous years and has been audited by the Gauteng Audit Services & Auditor General, and they found it to be above board,” the department’s director of nonprofit financing, Themba Msimanga, wrote in a letter at the time. His recommendation of the conduit scheme was subsequently signed off by four of his superiors.
In arguing that A Re Ageng was simply being obstructionist when it suddenly refused to act as a conduit, the department also put forward proof of a history of such schemes: a 2014 agreement in which A Re Ageng had agreed to be a conduit for fellow nonprofit Women Against Women and Children Abuse.
In argument before Spilg, however, the department has admitted that using financial conduits does not comply with the Public Finance Management Act — an admission Spilg has now ordered that the national treasury must be appraised of. Spilg said the treasury may wish to join the court case.
Argument is due to continue on Monday.